UK borrowing hits its highest level amid Iran war concerns

Britain’s public finances recorded their biggest April shortfall since the COVID-19 pandemic, highlighting mounting fiscal pressures facing finance minister Rachel Reeves amid the economic fallout from the Iran war.

Official figures released on Friday showed government borrowing during April rose 25% from the same month last year to 24.3 billion ($32.63 billion).

It marked the second-highest borrowing figure for April on record.

Economists surveyed by Reuters had forecast a smaller deficit of 20.9 billion pounds for the first month of the financial year.

Economists warn of worsening fiscal outlook

Analysts said the latest figures could signal deeper financial strain in the coming months as geopolitical tensions weigh on economic activity and government spending.

“This provides an early sign of the deterioration in the public finances that is inevitable over the coming quarters,” Ruth Gregory, deputy chief UK economist at Capital Economics, said, as quoted in a Reuters report.

Reeves is currently working toward her target of balancing day-to-day government spending with tax revenues by the end of the decade.

However, political pressure on the government has intensified as Prime Minister Keir Starmer faces weak poll ratings and growing criticism within his own party.

The Iran war has complicated Reeves’ fiscal plans by increasing the risk of an economic slowdown that could weaken tax revenues.

Separate data released on Friday showed British retail sales recorded their steepest decline in nearly a year during April.

Rising costs add to government pressure

The conflict has also pushed borrowing costs higher while increasing pressure on the government to provide additional support for households and businesses dealing with higher energy prices.

Reeves said on Thursday that the government would increase taxes on oil and gas companies to help fund some of the support measures.

Data from the Office for National Statistics showed government receipts increased 2.9% in April compared with the same month in 2025, while public spending rose 6.5%.

Before the Iran war began, Britain’s budget forecasters had projected public sector borrowing would narrow to 3.6% of gross domestic product during the current tax year.

That would have represented the smallest budget deficit since before the pandemic.

However, Gregory said the combined impact of energy support measures, higher borrowing costs and weaker economic growth could significantly worsen the outlook.

She estimated the budget deficit could rise to 4.6% of GDP in the 12 months ending March 2027.

Political uncertainty weighs on investor sentiment

Investors remain concerned about the possibility of political leadership changes in Britain as several Labour lawmakers reportedly want Starmer to step down.

His potential successor, Manchester mayor Andy Burnham, has indicated he would continue adhering to the fiscal rules currently backed by Reeves.

The Office for National Statistics also revised borrowing data for the previous financial year.

Borrowing for the year ending March was lowered by 3 billion pounds to 129 billion pounds, equivalent to 4.2% of GDP.

That compared with 5.2% of GDP in the 2024/25 financial year, according to the ONS.